- A glance on the ‘pay now argue’ later principle
- Highlight of the impending Finance Act 2016 towards further grounding the taxpayer to pay tax before objection is determined
The taxing authority, Tanzania Revenue Authority (TRA) is empowered to make assessment and collect taxes in relation to the amount of tax assessed. At any time that a taxpayer feels aggrieved with the assessment for any reason, the taxpayer is legally given an avenue to object to the tax assessment in question.
Paying First Requirement
The law as it stands in Tanzania requires that a person so objecting should pay the amount not in dispute or one third of assessed tax whichever is greater. The law imposes this onerous duty on a taxpayer who has lodged a notice of objection to the assessment as provided for under Sections 51(5) of the Tax Administration Act, 2015 (‘TAA’) to pay the said sums pending the final determination of his objection to the assessment. This is referred to as the ‘Pay Now Argue Later’ principle in tax cases. The Commissioner is however mandated to direct the payment of lesser tax deposit or even order complete waiver of deposit, upon good cause (See Section 51(6) of the TAA).
Rationale for the requirement
The rationale for paying a portion of the assessed tax pending determination of the objection is well rooted on the fact that to the state tax collection should not be stopped because of litigation pending in Courts. Further, the requirement is put as a deterrence measure to discourage taxpayers from using “objections to assessment “as a way to delay payment of tax which is rightly due to TRA.
Access to justice by Taxpayers in relation to the ‘Pay Now Argue Later’ Principle
The ‘Pay Now Argue Later’ principle is viewed as a setback on the part of taxpayers’ right to challenge tax decisions. An objection by a taxpayer is not entertained for lack of meeting the requirements of Section 51(5) of the TAA, 2015 or absence of a waiver from the Commissioner (Section 51(6) of the TAA). The requirement to pay the one third of the assessed tax or the tax not in dispute together with limited chances of getting the Commissioner’s waiver are a great hindrance to taxpayers in challenging impugned tax decisions.
The grant or rejection of the waiver for payment of disputed tax is a sole discretion of the Commissioner and in most cases taxpayers’ requests for waiver have not been successful. This is because the law does not provide for factors to be considered by the Commissioner in granting or rejecting the said waiver. Unlike the law in South Africa, the reasons to be considered in suspending the payment are provided for under Section 164 (3) of Tax Administration Act, 2011 of South Africa provides:
“A senior South African Revenue Services (SARS) official may suspend payment of the disputed tax or a portion thereof having regard to relevant factors, including:
- whether the recovery of the disputed tax will be in jeopardy or there will be a risk of dissipation of the assets;
- the compliance history of the taxpayer with SARS;
- whether fraud is prima facie involved in the origin of the dispute;
- whether payment will result in irreparable hardship to the taxpayer not justified by the prejudice to SARS or the fiscus if the disputed tax is not paid or recovered;or
- Whether the taxpayer has tendered adequate security for the payment of the disputed tax and accepting it is in the interest of SARS or the fiscus.’’
It is recommended that the law in Tanzania be amended to provide for factors which are to be considered by the Commissioner in making decision on requests for waiver of payment of the tax not in dispute or the one third of the assessed tax. Such relevant factors will be of great significance to both the Commissioner and taxpayers with regard to application for waiver.
Enactment of the Finance Act, 2016 and its impact on the ‘Pay Now Argue Later’ Principle
As pointed out earlier, Section 51(1) and (5) of the TAA, 2015 requires the taxpayer to pay the tax not in dispute or one third of the assessed tax whichever is greater. It is prudent to note that the Finance Act, 2016 has added a further subsection (9) in Section 51 regarding tax objections and assessments. The said amendment provides:
“(9)Where the taxpayer fails to pay the amount stated under subsection (5) within the time provided therein, the assessed tax decision shall be confirmed as final tax assessment in terms of section 15(1)(a) of the Tax Revenue Appeals Act.”
The Finance Act has also moved to amend subsection (5) itself by also adding thatthe undisputed assessment or one third thereto, whichever is greater must also be payable within 30 days of date of service of the decision (tax assessment, that is).Breakthrough Attorneys’ tax department reckons that the reproduction of the timeline is in essence an unnecessary one based on the fact that the requirement can only be done within the same timeline for lodging an assessment (which is already stated in subsection (1)) and cannot be deemed as an extension of time for filing an objection since both acts are stemmed from the date of service of the tax decision. However, it can be rightly adduced that the amendments are intended to capture the taxman’s desire to solidify the principle of ‘Pay Now Argue Later’ for the impending objectives of increasing revenue collections.
The law in Kenya
Tax appeals in Kenya are governed by the Tax Appeals Tribunal Act No. 40 of 2013. This law provides that (Section 12 of the Act) a person who disputes the decision of the Commissioner in any tax matter to give a notice to the Commissioner of the intention to appeal to the Tribunal. The law requires that such person shall pay a non-refundable fee of Twenty Thousands Kenyan Shillings.
By simple analogy therefore, the law in Kenya only mandates the taxpayer to deposit the non-refundable fee. In other words, the law in Kenya does not recognize the principle of Pay Now Argue Later as it is in Tanzania. This difference has very stringent bearings to the economic and financial welfare of the taxpayer as pointed out above.
Position in South Africa
The position in the case of South Africa, is more or less similar to that in Tanzania to some extent. Generally, the obligation to pay tax and the right to collect tax by the South African Revenue Service (SARS) official will not be waived mainly because a taxpayer has an objection. However, a taxpayer who intends to dispute tax assessment can request a suspension to pay the tax due or a portion of it pending the determination of the objection or appeal from a senior official of SARS (Section 164 of the Tax Administration Act of South Africa). In considering the application a SARS official will consider the history of the taxpayer, the amount involved, whether the taxpayer can provide adequate security of the payment of the amount involved, whether the amount involved will cause financial hardship to the taxpayer and whether fraud was involved in the original dispute.
In the South African case of Capstone 556 (Pty) Ltd v. Commissioner, South African Revenue Service, it was held that the consideration underlying the Pay Now, Argue Later concept includes the public interest in obtaining full and speedy settlement of tax debts and the need to limit the ability of defiant taxpayers to use objection and appeal procedures strategically to defer payment of their taxes.
It is worth noting that in South Africa it is now possible for taxpayers to obtain an injunctive order against the Revenue Authority pending the determination of the tax dispute. Moreover, it is possible for a taxpayer to obtain a waiver of payment from the senior official of SARS by considering the reasons stipulated under Section 164 of the Tax Administration Act, 2011.
Breakthrough Attorneys is of the view that the amendments of Section 51(5) of TAA, 2015 as per the Finance Act, 2016 will lead to further complexity and curtailment of the access to justice on the part of taxpayers. It is high time that policy and legislative reforms be done to meet the ends of justice to taxpayers with respect to the impugned principle of Pay Now Argue Later.